If growth stock volatility is giving you a headache: I've got some great news. You probably have a better chance to outperform over time by investing in dividend-paying stocks that do a lot less bouncing around.
From 1973 through 2021, components of the S&P 500 index that initiated or grew their dividend payouts delivered a healthy annual return of 10.7%, according to a study from Hartford Funds and Ned Davis Research. Over the same time frame, investors received just 4.8% from non-dividend-paying members of the benchmark index.
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Lots of stocks pay dividends, but not all of them can be relied upon to steadily raise their payouts over time. The stocks on this list stand out because they have a history of consecutive annual payment increases. Read on the see why there's a good chance they can keep their streaks going long enough to fuel your retirement dreams.
Johnson & Johnson
At recent prices, shares of Johnson & Johnson (JNJ 0.92%) offer an above-average 2.7% yield and investors can rely on its continued growth. Last April, the healthcare conglomerate raised its dividend payout for the 60th consecutive year.
Johnson & Johnson is highly likely to announce another dividend payout bump this April. The company's diversified healthcare businesses generated a whopping $17.7 billion in free cash flow over the past year. Meeting its dividend commitment consumed around 65% of free cash flow leaving room for another increase a few months from now.
In the third quarter of 2022, sales from Johnson & Johnson's pharmaceutical segment rose 9% year over year, and its medical technology business increased by 8.1% year over year if we ignore the detrimental effects of a rising dollar.
To focus on its faster-growing segments, the company will spin off its consumer health division into a separate company to be named Kenvue. Post separation, investors could receive steadily climbing dividend payments from two companies instead of just one.
Medtronic
Medtronic's (MDT 0.27%) dividend program isn't as old as Johnson & Johnson's but it's growing a little faster. The company raised its payout in each of the past 45 years at a 16% annual growth rate.
At recent prices, Medtronic stock offers a 3.4% dividend yield. The pace of payout bumps has subsided in recent years but the 8% increase management announced in December is hardly anything to complain about.
In addition to run-of-the-mill devices that you can find in just about any hospital on earth, Medtronic is rapidly advancing a robot-assisted surgery system called Hugo. In December, a clinical trial with Hugo began enrolling patients scheduled to receive urologic procedures.
The urology space has been key to the success of robotic-assisted surgery pioneer, Intuitive Surgical. Successful results from clinical trials with Hugo could help Medtronic continue making big payout bumps for many years to come.
Ally Financial
It was founded over a century ago but Ally Financial (ALLY 0.83%) didn't separate from General Motors until 2010. Naturally, this all-digital bank has the shortest track record of annual dividend bumps on this list.
Ally Financial's dividend program lacks the longevity of Johnson & Johnson and Medtronic but it more than makes up for this shortcoming with size and speed. This bank started a dividend program in 2016 and has already raised the payout by 275%.
Despite rapidly raising its payout over the past several years, Ally hasn't stretched itself thin. The bank generated $2.3 billion in free cash flow over the past year but needed less than 18% of this figure to meet its dividend commitment.
During the fourth quarter of 2022, the auto loans Ally originated provided an estimated yield of 9.57%. That's 2.6% more than the yield on loans originated a year earlier. The bank must pay slightly more interest to its depositors but the overall effect will boost Ally's already strong profit margins in 2023 and beyond. Buying the stock now and simply holding on could lead to heaps of passive income generation in the years to come.
